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Baseball’s Twisted Logic Rewards the Teams That Don’t Try to Win

(Bloomberg Opinion) -- There’s a heated debate about why the 2019 Major League Baseball season is beginning with so many players remaining unsigned. While one theory is that “Moneyball”-style analytics have led to a new equilibrium where teams have learned not to overpay for players, a simpler explanation might be that teams realized the undervalued “asset” to exploit is that losses could be more valuable than wins.

This sounds perverse. How could losses be undervalued? The goal in sports is to win, and winning typically means spending money on some combination of players, coaches, scouts and front office brains tasked with assembling a winning team. While this may be true, professional sports are a business, and the goal of business is to make money. And unfortunately for players and fans, in Major League Baseball, losing games has never been more profitable.

It’s taken a long time to get to the point where losing has become such an attractive strategy for teams, beginning around 15 years ago, when Michael Lewis wrote “Moneyball,” about how the Oakland Athletics built a perennial winner for cheap by using analytics to find undervalued players. In the early to mid-2000s a big problem in baseball was the financial discrepancy between large-market teams like the New York Yankees and small-market teams like the Tampa Bay Rays. In 2004, after acquiring Alex Rodriguez from the Texas Rangers, the Yankees had a payroll that was around six times that of the small-market Rays, with Rodriguez earning almost as much as the entire Rays roster did. How could small-market teams expect to compete?

Over the ensuing 15 years, multiple changes have occurred to lower the on-field disparity between large and small-market teams. The growth of national TV contracts have given all teams a steady source of shared revenue, even when large-market teams like the Yankees, Chicago Cubs and Los Angeles Dodgers are on TV much more frequently than the small-market Rays. The sale of BAMTech, the service Major League Baseball created to stream games online, to Disney provided a one-time windfall to team owners. A luxury tax on payrolls penalized spending by large-market teams, which has restrained spending on players.

A bigger change might have been teams becoming thoughtful about what they’re trying to accomplish in a given year. Rather than trying to win as many games as possible, teams began by asking themselves the question, “Are we positioned to make the playoffs or win a championship this year?” If the answer was yes, they’d be more willing to spend money on players to win. But if not, they realized they’d be better off spending as little money as possible, even if that meant being one of the worst teams in the league. Essentially, there’s more overall value in being a team that wins 60 games rather than one that wins 75 games.

There’s a good rationale for this. As in all American pro sports leagues, the worst teams are given the best draft picks in the following year’s amateur draft. While the baseball draft is more of a crapshoot than drafts in football and basketball, all else equal there’s still more value in higher draft picks than lower draft picks. Additionally, the salary structure in baseball allows teams to control the rights to their draft picks and young talent for years, meaning that draft picks that become good players are often paid significantly less than fair market value would dictate.

Beyond draft picks, teams decided there isn’t much financial penalty to being epically bad rather than merely mediocre. A certain number of fans will want to go to games regardless of the quality of the product on the field. Parents take their kids to eat hot dogs in the sun. People go on dates. The product on the field becomes a sideshow to the main event, which might be the stadium food or amenities. The Atlanta Braves have even taken this a step further, by building a mixed-use development around their new ballpark, making the baseball team an amenity for a lucrative non-baseball real estate venture. Outside of the teams in Florida, the lowest-drawing teams in baseball still brought in around 1.5 million fans last year, acting as a floor on attendance.

For the majority of baseball teams, the new “Moneyball” logic says that you’re either a championship contender or you’re trying to spend as little money as possible, so spend money accordingly. If you’re the latter then you can count on TV money and the attendance floor to act as a profit engine while you wait for the day when you’re a championship contender and in the position to spend money again.

This is what has broken the game. If analytics say there’s value in losing, then teams are going to try to lose, with player salaries and fan interest suffering accordingly.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Conor Sen is a Bloomberg Opinion columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.